German economy 'growing faster than before Wall fell'

GERMANY's economy is powering ahead at the fastest rate since the fall of the Berlin Wall, record breaking figures revealed yesterday, prompting hopes that the UK economy might benefit from increased demand.

The country recorded a growth rate of 2.2 per cent in the second quarter, as its huge exporting sector boomed, and German consumers opened their wallets.

The German mini-boom pushed up overall growth in the 16-nation eurozone to 1 per cent over the same period, amid signs that the European market is beginning to emerge from the recession. It comes after the governor of the Bank of England Mervyn King said earlier this week that the weak pound could be one of the keys to a British recovery, helping exports.

The German growth rate for the April to June period has "never been recorded before in reunified Germany," the national statistics office, Destatis, said.

It means Germany is growing more than twice as fast as its nearest European competitors such as the UK, which grew by 1 per cent over the same period and France, which managed just 0.6 per cent.

With those countries still lagging, economists urged caution about a Europe-wide boom last night, saying that it was Germany which was propping the rest of the continent up. The south of the continent remains in trouble, with Italy and Spain registering very low growth.

The Greek economy shrank by 1.5 per cent.

Economists believe the second quarter will be as good as it gets for the eurozone in 2010, as governments across the region pursue a raft of austerity measures to cut ballooning debt levels.

Carsten Brzeski, an economist with ING in Brussels, said the figures were a "clear sign the eurozone coped with the sovereign debt crisis better than expected" but added that the "eurozone growth story is still pretty much a German export story".

He said: "Although several other core eurozone countries also showed promising developments, it is too early to become overly enthusiastic.In particular, the southern eurozone countries are not yet out of the woods."

Mr Brzeski said the German economy was in a "league of its own" and put the impressive growth down to a catching up in the construction sector after the harsh winter and strong foreign demand for German goods.

Jennifer McKeown, senior European economist at Capital Economics, warned peripheral eurozone economies could still return to recession.

She added: "Meanwhile, the German recovery will weaken as global demand slows and its own fiscal consolidation begins next year."

The German government still has an official forecast for this year of 1.4 per cent growth but its economy minister Rainer Bruederle said expansion of "well over 2 per cent" was now possible.

The main reason for the growth in Germany and the wider eurozone, was due to high demand for exports, helped by a weaker euro, economists said.

It is thought the Greek economy is unlikely to recover for some time as austerity measures continue to hurt consumers and businesses.

While all other countries left recession, Spain and Portugal are still lagging behind, both reporting 0.2 per cent growth in the second quarter.

The wider 27-country EU, which includes non-euro members such as Britain and Sweden, also grew by a quarterly rate of 1 per cent.